Uncertainty hammers consumer confidence

Consumer confidence has plunged as households fret about prospects for the economy and their own finances amid Europe’s worsening debt problems, elevated interest rates and uncertainty about the impact of the carbon tax.

The Westpac-Melbourne Institute consumer sentiment index plummeted 8.3 per cent this month to reach 92.8 points, its lowest reading in more than two years, and is approaching the lows experienced during 2008 when confidence was battered initially by high interest rates and subsequently the global financial crisis.

The survey was conducted last week, before the details of the federal government’s carbon tax package were known, but Westpac chief economist Bill Evans said the result captured the dampening effect of the looming impost on the mood of households, amplifying already-elevated concerns about the risk of a relapse in the global recovery and weak conditions in much of the economy not directly benefiting from the resources boom.

Almost all measures of confidence in the survey fell.

The index measuring views on the outlook for the economy in the next 12 months fell 13.5 per cent, while confidence in prospects for family finances in the year ahead fell 4 per cent, continuing a decline that began in the middle of last year to reach levels not seen in more than six years.

Disappointingly for retailers, the index measuring views on whether or not now was a good time to buy a major household item plunged 9.5 per cent.

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Financial markets have priced in a 33 per cent chance of a rate cut next month, and while the Westpac economist did not back this call, he nonetheless saw little prospect of a rate hike before early next year.

“Global financial conditions are unlikely to deteriorate to the extent we saw in 2008," Mr Evans said. “Nevertheless, these conditions will hardly be conducive to the Reserve Bank raising rates. As such, we do not expect to see a change in rates for the remainder of this year, with an easing bias the most appropriate policy response to the current circumstances.’